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Published on 10 April 2025

Navigating Recent GST Changes in Renting Immovable Property: Key Insights

Understanding the GST Changes for Renting of Immovable Property

Goods and Services Tax (GST) is often presented by the Government as a "Good and Simple Tax." However, many taxpayers, including GST experts, find this characterization questionable. Effective July 18, 2022, recent notifications have further complicated the already intricate landscape of GST, particularly concerning the "Renting of Immovable Property" service. The timing of this policy shift raises concerns, as significant changes are typically better suited to align with the beginning of a new financial year to facilitate smoother transitions and compliance.

Recent Changes in Renting of Immovable Property

The renting of immovable property is categorized into two primary segments:

Renting of Commercial Property

  • This service has always been subject to a forward charge, meaning that the supplier of the service (the landlord) is responsible for charging GST on the rent.
  • An exemption exists only if the landlord is not registered or has an aggregate turnover below the threshold limit of ₹20 lakhs.

Renting of Residential Property for Residential Use

  • Prior to July 18, 2022, this service was exempt from GST. However, a new framework has been established with the removal of this blanket exemption.

  1. Renting to a Business Entity Registered Under GST:

    • Effective July 18, 2022, this service becomes taxable, but the service provider is not liable to charge GST under the forward charge mechanism.
    • Instead, the service receiver (the business entity) must charge GST under the Reverse Charge Mechanism (RCM).
    • Even if the property is utilized for residential purposes for employees or directors, and the expenditure is recorded in its books, GST must still be charged under RCM.

  2. Renting to a GST-Registered Proprietor for Personal Use:

    • This service remains exempt from GST. Consequently, there are no compliance obligations for either the landlord or tenant, provided that the rent is not claimed as an expense.

Thus, the renting of residential property for the residential use of unregistered persons, or for the personal use of registered proprietors, remains exempt from both forward and reverse charges.

Taxability of Hotel Accommodation

  • Before July 18, 2022: Accommodation valued below ₹1,000 per unit per day was exempt from GST.
  • After July 18, 2022: The exemption has been revoked. Hotel accommodation costing up to ₹7,500 is taxable at 12%, while accommodation exceeding ₹7,500 is taxable at 18%, with eligibility for Input Tax Credit (ITC).

Hostel Accommodation

  1. For Students:

    • If a business entity provides hostel services for short-term stays with amenities like food, internet, and laundry, GST is applicable at 12%.
    • Long-term stays governed by rental agreements remain exempt.

  2. To Educational Institutions/Universities:

    • If the service receiver is unregistered, the service is exempt.
    • Registered educational institutions must pay tax under RCM at 18% starting July 18, 2022.

  3. From Educational Institutions to Students:

    • Services provided directly to students are exempt.

  4. From Commercial Coaching Institutes to Students:

    • If hostel services are bundled with coaching, they are taxable at 18%.
    • Short-term standalone hostel facilities are taxable at 12%, while long-term agreements without coaching services are exempt.

Charging for Religious Places and Dharmshalas

  • Renting Rooms: Charges under ₹1,000 per day per room are exempt; otherwise, GST is applicable.
  • Renting Halls or Mandapams: Charges below ₹10,000 per day are exempt; amounts above this threshold are taxable.
  • Renting Shops or Commercial Spaces: Charges below ₹10,000 per month are exempt; higher amounts are taxable.

Additional Taxability Challenges

Further complexities arise concerning GST on renting immovable property, such as:

  • Property location
  • Place of registration for landlords
  • Eligibility for ITC

The introduction of the Reverse Charge Mechanism adds to these complications, despite being framed as revenue-neutral. The government's trend of including more services and goods under this provision raises valid concerns among taxpayers about a simpler tax regime.

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